Sequoia & Union Square Returns, the Post-AI Labor Market, and the Return of SF? | E1907

Sequoia & Union Square Returns, the Post-AI Labor Market, and the Return of SF? | E1907

David Weisburd intros Erik Torenberg, Guy Perelmuter, and Jason Calacanis (00:00:00)

  • Elon Musk's framework for running Twitter is elegantly simple yet complex, and he has successfully executed on it by shipping more products with 15% of the workforce.
  • This has inspired a new generation of founders to consider operating their companies with a fraction of their current teams.

VC returns have been leaked, including returns from Sequoia Capital and Union Square Ventures (00:01:15)

  • Union Square Ventures has a 9.1x cash-on-cash return for UTIMCO across nine funds, while VC returns have varied from 1.8x to 3.2x over the past three decades.
  • Vintages that started during severe crises have historically outperformed, and Jason Calacanis's angel investing returns at Sequoia have been counter-cyclical.
  • Sequoia and Union Square Ventures have achieved remarkable success since the 2008 financial crisis, with many funds reaching impressive IRRs of 20% to 40%.
  • The venture capital industry exhibits significant dispersion in returns, and building a successful portfolio involves selecting preferred general partners of top entrepreneurs.
  • Union Square Ventures has achieved a remarkable hit rate with successful investments like Twitter, Etsy, Tumblr, Coinbase, and Lending Club, rather than relying on a single big winner.
  • Fred Wilson's investment philosophy involves a mixed position strategy, selling a third of a successful investment upon reaching a certain threshold, holding a third regardless of price, and selling the remaining third near lockup expiration based on valuation considerations.
  • Sequoia Capital and Union Square Ventures are returning to in-person events, signaling a potential revival of the San Francisco tech scene.

OpenPhone - Get 20% off your first six months (00:11:33)

  • OpenPhone is a business phone app that offers a user-friendly interface, shared phone numbers, and customer support to simplify business communications.
  • Sequoia Capital and Union Square Ventures are returning to in-person events, signaling a potential revival of San Francisco's tech scene.
  • The post-AI labor market will shift towards human-centric jobs that require creativity, empathy, and critical thinking.
  • Consistency is crucial in investment strategies, and GPs should have a clear policy for dealing with exits and compensating LPs.
  • Managers should have some flexibility to adjust their investment strategies based on changing market conditions, but they should not deviate too much from their original style.
  • Sequoia Capital's philosophy involves selling 10% of their investment two to three times as the company's valuation increases, allowing them to pair their position and deploy more capital into earlier-stage startups.
  • Thoughtfulness and a clear philosophy are essential when selling investments, especially for emerging managers trying to establish a track record.

Bearish signs for the startup employment market (00:17:35)

  • January employment numbers indicate unease in the startup ecosystem, with more layoffs than resignations and employees hesitant to leave for new positions.
  • Startups are exploring offshore hiring, automation, and delegation to optimize efficiency and reduce costs.
  • The "death cross" moment suggests employees may have reached their peak employment packages and face potential salary reductions in the future.
  • AI is contributing to job displacement, with companies looking to replace the top and bottom 20% of employees with automation tools.
  • Elon Musk's successful reduction of Twitter's workforce while maintaining infrastructure highlights the potential for significant staff cuts without compromising operations.
  • Musk used a simple framework to categorize employees based on performance and essentiality, retaining exceptional and essential employees while letting go of non-essential ones.
  • This approach allowed Twitter to ship more products with a significantly reduced workforce, inspiring other founders to adopt a similar mindset focused on efficiency and effectiveness rather than team size and perks.
  • Squarespace convinced sesi to direct their recent Super Bowl ad.
  • Squarespace is known for helping people build beautiful websites.
  • Squarespace AI can instantly generate content for website text, email campaigns, and more.
  • Squarespace recently extended its bio sites platform.
  • Check out to get a free trial and 10% off your first website or domain purchase.

The emergence of the first one-person unicorn (00:26:12)

  • Induced demand suggests that as AI becomes more efficient and affordable, it will increase the demand for specialized human labor and expertise.
  • The future of work may involve small groups leveraging AI to achieve significant accomplishments, with a three-person company being more likely than a "one-person unicorn."
  • Offshoring poses a short-term threat to job loss, as hiring international employees can be more cost-effective for certain roles.
  • AI may pose a long-term threat to certain jobs, but there will likely be a redistribution effect to address those affected.
  • The productivity gains from AI may lead to new careers and opportunities, expanding the horizon of possibilities.
  • Smaller VC funds may emerge as the opportunity set becomes tighter, but the overall opportunity set is expected to expand.
  • Sequoia and Union Square Ventures are returning to the startup scene, signaling a potential revival of San Francisco's tech industry.
  • The post-AI labor market will prioritize capital efficiency, leading VCs to seek individuals who can provide valuable advice and brand recognition at a lower cost.
  • Crypto projects that have yet to deliver a product are still awaited, while decentralized platforms like Forecaster are gaining traction by offering developers a trustworthy platform to build on.

Coda - Get a $1,000 startup credit (00:36:46)

  • Koda is an all-in-one platform that combines the best of documents, spreadsheets, and apps.
  • Founders University uses Koda to run its weekly operations, including collecting progress updates from founders, sorting through data, sending automated reminders, and tracking growth.
  • Koda offers a $1,000 credit to startups to support their planning and tracking needs.

Founders & investors are now returning to San Francisco (00:38:10)

  • Eric moved to Miami and was impressed with its growth, particularly with companies like Traba.
  • Despite limitations, Miami's network effects remain strong, as seen in the resilience of Twitter and San Francisco.
  • Entrepreneurs in San Francisco are now actively engaging in local politics to drive positive change.
  • Other regions like Austin, Miami, New York, and LA are experiencing significant growth and attracting tech companies and talent.
  • Young people in the tech industry should consider starting in San Francisco but also explore opportunities in other growing regions.
  • San Francisco is expected to thrive despite negative press coverage.
  • The Bay Area and California attract tech companies due to the concentration of venture capitalists and tech workers.
  • The US offers a unique ecosystem for startups, including close university-industry ties, government support, and a risk-taking culture that rewards failure.
  • The willingness of investors to accept high failure rates is crucial for the success of defense companies, space companies, and other cutting-edge industries.

Rapid-fire segment on recent investments (00:47:35)

  • Jam is a Chrome extension that enables efficient bug reporting and resolution by facilitating communication between non-engineers and engineers.
  • Antaris, led by Julia Dewal and Jordan Bramble, is a nuclear company developing micro-reactors that provide resilient power sources without refueling for up to 5 years, targeting entities like the Department of Defense.
  • Perplexity, founded by former OpenAI team members, is a conversational search engine gaining popularity for its unbiased search results, surpassing competitors like ChatGPT.
  • Mesine has created a technology to generate electricity from heat waves emitted by fuel, resulting in energy sources 10 times more durable than existing battery technology. They are in talks with the defense department and have working prototypes.
  • Lima Charlie is a cloud-native security operations company that protects companies from cyber threats by monitoring multiple API calls and covering every data point and attack surface.
  • Cloud and SE operates in the Industry 4.0 space, developing solutions for the manufacturing sector. Their assistant automates tedious tasks, making the process more efficient and reducing the need for skilled professionals.
  • Terra Cafe, an investment by the podcast's hosts, is a successful consumer electronics company that produces high-demand and profitable espresso machines.
  • Golf AI is a one-person startup that uses pictures and reinforcement learning to provide affordable golf swing advice, making it accessible to those who cannot afford traditional golf lessons.
  • Cod Mate is a Chrome extension that assists in debugging and improving legacy codebases, helping developers maintain and fix inherited code.

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